Tax Type
Individual Income Tax
Description
Successfully change domicile from Virginia to State A
Topic
Persons Subject to Tax
Residency
Taxable Income
Date Issued
09-29-2006
September 29, 2006
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the individual income tax assessment issued to ***** (the "Taxpayers") for the taxable year ended December 31, 2003.
FACTS
The Taxpayers, a husband and wife, moved to a Virginia farm from ***** ("State A") in 2000 pursuant to a job transfer. The Taxpayers obtained Virginia driver's licenses and registered their personal vehicles in Virginia. In addition, they registered to vote in Virginia. The Taxpayers filed resident Virginia individual income tax returns. While residing in Virginia, the Taxpayers maintained a State A bank account, a State A post office box, and continued to see medical specialists in State A.
The Taxpayers continued to own a house in State A. A tenant resided in the State A house, and the Taxpayers reported the net rental income on Schedule E of their federal individual income tax return.
In August of 2003, the husband retired from his job. He obtained a State A driver's license, registered one of his vehicles in State A, and registered to vote in State A. He also began a consulting business. In October of 2003, the husband received a distribution of income from a defined pension plan. The Taxpayers filed a part-year Virginia individual income tax return that stated they abandoned their Virginia domicile in August of 2003.
The Department audited the Taxpayers, and the auditor determined the Taxpayers failed to abandon their Virginia domicile. As a result, an assessment for additional individual income tax and interest was issued for the 2003 taxable year. The Taxpayers contend that the move to Virginia was temporary and they never relinquished their State A domicile. The Taxpayers request the assessment be abated.
DETERMINATION
Residency
Two classes of residents, a domiciliary resident and an actual resident, are set forth in Va. Code § 58.1-302. The domiciliary residence of a person means the permanent place of residence of a taxpayer and the place to which he intends to return even though he may actually reside elsewhere. For a person to change domiciliary residency to another state, that person must intend to abandon his Virginia domicile with no intention of returning to Virginia. Concurrently, that person must acquire a new domicile where that person is physically present with the intention to remain there permanently or indefinitely. An actual resident of Virginia means a person who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia. A Virginia domiciliary resident, therefore, working in other parts of the country or in another country who has not abandoned his Virginia residency continues to be subject to Virginia taxation. Additionally, a person who is not a domiciliary resident of Virginia, but who stays in Virginia for an aggregate of more than 183 days is also subject to Virginia taxation.
In order to change from one legal domicile to another legal domicile, there must be (1) actual abandonment of the old domicile, coupled with an intent not to return to it, and (2) an acquisition of a new domicile at another place, which must be formed by personal presence and an intent to remain there permanently or indefinitely. The burden of proving that the domicile has been changed lies with the person alleging the change.
In determining domicile, consideration may be given to the individual's expressed intent, conduct, and all attendant circumstances including, but not limited to, financial independence, profession or employment, income sources, residence of spouse, marital status, sites of real and tangible property, motor vehicle registration and licensing, and such other factors as may be reasonably deemed necessary to determine the person's domicile. A person's true intention must be determined with reference to all of the facts and circumstances of the particular case. A simple declaration is not sufficient to establish residency.
The Department determines a taxpayer's intent through the information provided. The Taxpayer has the burden of proving that he or she has abandoned his or her Virginia domicile. If the information is inadequate to meet his or her burden, the Commissioner must conclude that he or she intended to remain indefinitely in Virginia.
The Taxpayers contend they intended to move back to the State A and never abandoned their State A domicile. In other words, the Taxpayers assert that they never established domicile in Virginia. The evidence overwhelmingly suggests otherwise. The Taxpayers purchased a Virginia residence, obtained Virginia driver's licenses, registered automobiles in Virginia and registered to vote in Virginia. In addition, the information provided indicates the husband's transfer to Virginia by his employer was a permanent assignment.
Further, the Department is not convinced by the Taxpayers' assertion that they never established a Virginia domicile because they maintained bank accounts and a post office box in State A, and they continued to see physicians in State A. With the legalization of interstate banking in the mid-1990s and proliferation of automated and on-line banking, the significance of the state in which a bank account is established or maintained in determining domicile is greatly reduced. In addition, the financial position of the Taxpayers made it feasible for them to travel to State A for appointments with physicians.
Based on the evidence, it is clear that the Taxpayers changed their domicile from State A to Virginia in 2000. The issue in this case, therefore, is whether the husband's actions in 2003 were sufficient to successfully change their domicile from Virginia to State A.
The husband performed a number of actions consistent with changing his domicile to State A in 2003. He obtained a State A driver's license and canceled his Virginia license and registered a vehicle in State A. In addition, he registered to vote in State A.
In addition, there are a number of actions consistent with retaining a Virginia domicile. The Taxpayers continued to own a residence in Virginia. The Taxpayers continued to have a number of vehicles registered and garaged in Virginia. The Taxpayers contend one vehicle is left in Virginia for visits to the farm and other vehicles are driven exclusively by their adult children who do not reside in Virginia. In addition, some older vehicles are used by workers on the farm. The farm was an active business concern during the 2003 taxable year. The Taxpayers were not farmers by vocation and hired employees to handle the operations on the farm.
The Taxpayers have provided a notarized affidavit dated September 3, 2003, indicating the husband's plans and intentions with regard to his retirement, the Virginia farm, the house in State A, and the farms the Taxpayers own in other states. The affidavit also states the husband changed his domicile from Virginia to State A, effective August 29, 2003.
The Taxpayers contend this affidavit should be accepted because it was executed at the time of the Taxpayer's move to State A; therefore, the affidavit demonstrates the husband's bona fide intention to abide permanently outside Virginia. The Taxpayer noted that the affidavit in this case clearly differs for the affidavit rejected by the Department in Public Document (P. D.) 05-74 (5/9/05). In that case, the affidavit at issue was dated almost three years after the events took place. Furthermore, the affidavit in P. D. 05-74 was a statement by a third party attesting to the actions of the taxpayers. The circumstances of that case led the Department to determine that the affidavit was contrived and did not accurately reflect the facts. The affidavit in the Taxpayers' case is a simple declaration by the husband and, by itself, is not sufficient evidence to establish residence. The affidavit is, however, instructive in determining when the Taxpayers moved out of Virginia.
After an in-depth review of the evidence, I conclude that the Taxpayers' actions were sufficient to successfully abandon their Virginia domicile and acquire a State A domicile in August 2003.
Part-Year Resident
During the course of reviewing the Taxpayers' 2003 part-year individual income tax return in connection with this case, the Department discovered several errors in the computation of the income attributable to Virginia. Virginia Code § 58.1-303 B states:
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- Any person who, on or before the last day of the taxable year, changes his place of abode to a place without the Commonwealth with the bona fide intention of continuing actually to abide permanently without Virginia shall be taxable as a resident for only that portion of the taxable year during which he was a resident of Virginia and his personal exemptions shall be reduced to an amount which bears the same ratio to the full exemptions as the number of days during which he was a resident of this Commonwealth bears to 365 days.
Title 23 of the Virginia Administrative Code (VAC) 10-110-40 provides that individuals who become residents of Virginia during the taxable year are only taxed as residents for that portion of the year that they reside in Virginia. Further, Title 23 VAC 10-110-40 D provides:
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- Any part-year resident who derives income from property owned or business, trade, profession or occupation carried on in Virginia during that portion of the taxable year in which he was a resident of another state or jurisdiction shall be taxed as a nonresident with respect to such income.
In this case, the Taxpayers attributed the entire loss from a farm operated in Virginia to income while a resident of Virginia. The records indicate that the farm operated during the entire 2003 taxable year. Accordingly a portion of the loss generated by the farm was earned by the Taxpayers after they moved out of Virginia.
The information provided does not indicate exactly when the receipts and deductions related to the Virginia farm occurred. In such cases, the method used should be the one that provides the most accurate reflection of actual income while residing in Virginia. Unless specifically documented otherwise, the Department will consider income from property owned or business, trade, profession or occupation to be generated evenly throughout the year. As such, the loss from the Virginia farm must be prorated by multiplying the amount of loss by the ratio of days of residence in Virginia to 365 days.
Further, the Taxpayers derived income from dividends, interest, and several business activities located outside Virginia that was attributed entirely to income while not a Virginia resident. Absent documentation to the contrary, the income from dividends, interest, and a number of farms located outside Virginia must be attributed to Virginia based on the ratio of days the Taxpayers resided in Virginia to the total number of days in the taxable year.
The Taxpayers also earned income from several rental properties located outside Virginia. Because rent was received on a monthly basis and the Taxpayers resided in Virginia for 8 months, the Department will attribute rental income based on a ratio of the time as a Virginia resident (8 months) divided by 12 months.
Nonresident
Pursuant to Va. Code § 58.1-303 C, a part-year resident who, as a nonresident of Virginia for any portion of the taxable year, derived income from any property owned or from any business, trade, profession or occupation carried on in Virginia is subject to Virginia income tax as a nonresident as provided under Va. Code § 58.1-325. Because the Taxpayers operated the farm in Virginia after moving to State A, they are required to file a nonresident individual income tax return for the portion of the year they did not reside in Virginia.
CONCLUSION
Accordingly, the assessment has been adjusted pursuant to the enclosed schedule. Please remit payment of the amount due to the Virginia Department of Taxation, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attn: *****. Payment must be received within 30 days from the date of this letter to avoid the accrual of additional interest. In addition, the 2003 nonresident individual income tax return must be mailed to: Virginia Department of Taxation, P.O. Box 760, Richmond, Virginia 23218-0760.
The Code of Virginia sections, regulation and public document cited are available online at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, you may contact ***** at *****.
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- Sincerely,
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- Janie E. Bowen
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- Tax Commissioner
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- Janie E. Bowen
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AR/1-547332529B
Rulings of the Tax Commissioner